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1.est Question 6 of 10) W a population of rabbits grows by 50% over 10 years, what is the average finite rate of increase per year? 38.44 15 50 5767 0 104 Type here to search
7. If =0.1, how long does it take a population to double? 0.75 years 0.05 years 6.93 years 0.7 years O 20 years
est Question 6 of 10) W a population of rabbits grows by 50% over 10 years, what is the average finite rate of increase per year? 38.44 15 50 5767 0 104 Type here to search

2.Consider a CES (constant elasticity of substitution) utility function u: R++ + R where (1-7 - 1 u(C) = = 1-7 for all c>0. (a) Compute the elasticity of marginal utility (i.e. the derivative of the utility function) with respect to consumption (that is, the absolute value of the percent change in marginal utility when consumption increases by 1%) and verify that it is indeed a constant number. 1 (b) Show that limy+1 u(c) = log c given any e > 0. (Hint: Use l'Hôpital's Rule: if f : RR and g:R → R are differentiable and limz0 f(x) = lim2709(x) = 0 and if lim270 f' (1) g' (2) exists, then limz+0 f(2) g(2) E limg-0.13.)

3. Q10. Which of the following occurs when disposable income is zero?

1. consumption must be zero.

2. saving must be zero.

3. saving must be positive.

4. consumption is negative.

5. none of the above

Q11. Suppose the consumption equation is represented by the following: C = 250 + .8???? .

The multiplier for the above economy equals

1. 2.

2. 3.

3. 4.

4. 5.

5. none of the above

Q12. Based on our understanding of the model presented in Chapter 3, we know that an

increase in ???? (where ???? = ???? + ???? ???? 101????

) will cause:

1. the ZZ line to become steeper and a given change in autonomous consumption (????0) to have a smaller effect on output.

2. the ZZ line to become flatter and a given change in autonomous consumption (????0) to have a larger effect on output.

3. the ZZ line to become flatter and a given change in autonomous consumption (????0) to have a smaller effect on output.

4. the ZZ line to become steeper and a given change in autonomous consumption (????0) to have a larger effect on output.

Q13. In the equilibrium of the goods market, the upward slope of the ZZ curve is attributable to

1. Consumption’s positive relation to disposable income.

2. Investment’s positive dependence on sales.

3. The direst relation of government spending to output

4. All of the above

5. A and B only.

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Q14. Based on our understanding of the model presented in Chapter 3, a reduction in investment will cause:

1. a reduction in the multiplier

2. an increase in the multiplier

3. a reduction in output

4. a reduction in the marginal propensity to save

5. both (b) and (d)

Q15. Suppose households become less optimistic about the future. All else constant, this attitude will cause the consumption function to:

1. Shift downward

2. Become flatter

3. Become steeper

4. Shift upward

5. Household optimism does not affect consumption, and thus there will be no change.

Q16. Suppose that the economy is characterized by the following behavioral equations C = 120 + 0.70????

I = 200 G = 170 T = 120

Equilibrium GDP is:

1. 1,233.33

2. 1,353.33

3. 983.33

4. 1253.33

5. None of the above

Q17. When government spending increases by $100, equilibrium output in the short run is expected to ____________.

1. increase by exactly $100.

2. increasebylessthan$100.

3. increase by more than $100.

4. decrease by less than $100.

5. Remain the same.

Q18. Decisions regarding investment are made by __________, whereas decisions regarding saving are made by __________.

1. government; consumers and firms.

2. firms; consumers and the government.

3. firms and the government; consumers and the government.

4. consumers; firms and the government.

5. firms and consumers; the government.

Q19. Equilibrium in the goods market can be expressed as Production = Demand. Alternatively, it can be stated as

1. Private saving = Investment.

2. Saving = Private saving + Public saving.

3. Investment = Saving.

4. Saving = Income minus Consumption.

5. Investment + Saving

Q20. The money demand curve will shift to the left when which of the following occurs?

1. an increase in the interest rate

2. an increase in income

3. a reduction in the interest rate

4. an open market sale of bonds by the central bank

5. none of the above

Q21. Suppose a one-year discount bond offers to pay $100 in one year and currently sells for $90. Given this information, we know that the interest rate on the bond is

A. 5.3%. B. 9.9%. C. 11.1%. D. 10% E. 12.1

4.An increase in the reserve ratio, theta, will cause:

1. an increase in the monetary base (H).

2. a reduction in H.

3. a reduction in the money multiplier.

4. an increase in the money multiplier.

5. none of the above.

Q23. An increase in the interest rate will cause:

1. a reduction in the supply of central bank money.

2. a reduction in the demand for currency.

3. a reduction in the demand for reserves.

4. all of the above.

5. both B and C.

Q24. Which of the following statements correctly describes the relationship between the interest rate and money demand?

1. When the interest rate increases, money demand decreases because interest- paying bonds become more attractive than the money balance.

2. When the interest rate increases, money demand increases because interest- paying bonds become less attractive than the money balance.

3. When the interest rate increases, money demand decreases because interest- paying bonds become less attractive than the money balance.

4. When the interest rate increases, money demand increases because stocks and bonds become more risky.

5. When the interest rate increases, money demand increases because stocks and bonds become less risky.

Q25. The Federal Reserve can ____________.

1. determine the discount rate by changing the supply of central bank money.

2. only control the money supply; it cannot determine the interest rate.

3. determine the federal funds rate by changing the supply of central bank money.

4. not determine the federal funds rate because it is determined in the private

   sector.

5. None of the above.

Q26. If the central bank wants to increase the money supply, it can ___________.

1. sell bonds in the market for bonds.

2. buy bonds in the market for bonds.

3. increase the reserve requirement for banks.

4. increase the discount rate.

5. Printlessmoney

Q27. Central bank money refers to

1. the money that the central bank has issued.

2. currency held by people plus reserves held by banks.

3. the liabilities of the central bank.

4. all of the above.

5. A and C only.

Q28. An increase in the parameter ???? (i.e., the proportion of money individuals wish to hold as currency) will tend to cause which of the following?

1. an increase in the monetary base (H).

2. an increase in the money multiplier.

3. a reduction in the money multiplier.

4. a reduction in H.

5. an increase in H.

Q29. Which of the following occurs as the economy moves leftward along a given IS curve?

1. an increase in the interest rate causes a reduction in the money supply.

2. an increase in the interest rate causes investment spending to decrease.

3. a reduction in government spending causes a reduction in demand for goods.

4. an increase in taxes causes a reduction in demand for goods.

5. an increase in the interest rate causes money demand to increase.

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Q30. Suppose policy makers decide to reduce taxes. This fiscal policy action will cause which of the following to occur?

1. the IS curve shifts and the economy moves along the LM curve.

2. output will change causing a change in money demand and a shift of the LM

   curve.

3. both the IS and LM curves shift.

4. neither the IS nor the LM curve shifts.

5. the LM curve shifts and the economy moves along the IS curve

Q31. The LM curve shifts down when which of the following occurs?

1. an increase in consumer confidence.

2. an increase in output.

3. an increase in taxes.

4. an open market sale of bonds by the central bank.

5. none of the above.

Q32. The IS curve will NOT shift when which of the following occurs?

1. a reduction in the interest rate.

2. a reduction in consumer confidence.

3. a reduction in government spending.

4. all of the above.

5. none of the above.

Q33. An increase in government spending will likely have which of the following effects?

1. a rightward shift in the IS curve.

2. an upward shift in the LM curve.

3. a leftward shift in the IS curve.

4. a downward shift in the LM curve.

5. none of the above.

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Q34. Suppose there is a Fed purchase of bonds and simultaneous tax cut. We know with certainty that this combination of policies must cause:

1. a reduction in Y only.

2. an increase in the interest rate (i).

3. a reduction in i only.

4. an increase in output (Y) and a reduction in i.

5. an increase in output (Y) and a increase in i.

Q35. Suppose a firm is considering using its own funds (rather than borrowing) to finance investment projects. If the firm faces higher interest rates, ____________.

1. it will use more of its funds to finance investment projects, as bonds become less attractive since bond prices fall with higher interest rates.

2. it will use more of its own funds to finance investment projects in order to avoid the higher costs of borrowing.

3. the firm will begin to invest more to get a better return.

4. bonds will become more attractive financial assets, so firms are more likely to

   purchase bonds rather than to finance investment projects.

5. It will need to layoff workers.

Q35. As the unemployment rate falls,

1. A) the proportion of the unemployed finding a job increases.

2. B) the separation rate increases.

3. C) the young and unskilled experience larger-than-average decreases in

   unemployment.

4. D) both A and C.

5. E) all of the above

5. The reservation wage is

1. A) the wage that an employer must pay workers to reduce turnover to a reasonable level.

2. B) the wage that ensures a laid-off individual will wait for re-hire, rather than find another job.

3. C) the lowest wage firms are allowed by law to pay workers.

4. D) the wage offer that will end a labor-strike.

5. E) none of the above.

Q37. Labor productivity is represented by which of the following?

A) the ratio of output to employment. B) workers per unit of capital.
C) capital per worker.
D) the ratio of output to population.
E) the ratio of output to the labor force.

Q38. The price setting equation is represented by the following: ???? = (1 + ????)????. When there is perfect competition, we know that m will equal

A) W.
B) P.
C) 1.
D) W/P.
E) none of the above

Q39. The natural level of output is the level of output that occurs when

1. A) the goods market and financial markets are in equilibrium.

2. B) the economy is operating at the unemployment rate consistent with both the

   wage-setting and price-setting equations.

3. C) the markup (m) is zero.

4. D) the unemployment rate is zero.

5. E) there are no discouraged workers in the economy.

Q40. Suppose workers and firms expect the overall price level to increase by 5%. Given this information, we would expect that

A) the nominal wage will increase by less than 5%. B) the nominal wage will increase by exactly 5%.
C) the nominal wage will increase by more than 5%. D) the real wage will increase by 5%.

E) the real wage will increase by less than 5%.